The Senate's small-business tax cut is a resurrection of a plan that Republican Gov. John Kasich's included in his two-year budget introduced in February. In the Senate's hands, the cut would mean 80 percent of small-business owners in the state who qualify would save less than $375 each year, prompting debate among lawmakers, experts and small-business owners over how much of an impact the cut would have on job creation.

"We believe the small-business tax cut will directly grow jobs in the immediate future," Senate President Keith Faber said after unveiling the latest iteration of the state's $63 billion budget.

Like Kasich, however, Senate leaders have not presented statistics or studies to show any direct impact on job creation. Independent analyses, including one by The Plain Dealer in February, show that the cut would not provide enough for most small businesses to add a single employee.

About 1.5 percent of business owners affected by the plan would save between about $14,800 and $22,200 annually.

Nearly 575,000 small-business owners who report company income on their personal taxes, and therefore qualify for the proposed cut, have a net income after payroll of just $25,000 per year or less, according to the Ohio Department of Taxation. That's about 80 percent of those who would be eligible for the cut.

"We are in favor of anything that would improve the competitiveness of our state's tax code," said Dan Navin, Ohio Chamber of Commerce assistant vice president of tax and economic policy. "We think reducing marginal rates or targeting tax relief toward small-business owners -- which, depending on the statistics you want to look at, create 80 to 85 percent of the jobs -- is something that would benefit the state's economy."

Designer Walls owner Kathy Pierce said she would welcome any sort of tax break, but was skeptical about the effect the cut would have on her interior renovation business.

The Senate's proposed 50 percent cut would apply to the first $750,000 in yearly income, so a business owner earning $100,000 would only be taxed on $50,000.

Pierce's yearly net income averages between $50,000 and $100,000, which means the Valley View business owner would save a maximum of $2,152 each year under the Senate's plan.

"Big deal. It's not significant when you look at what your tax liability is every year," Pierce said. "It's a drop in the bucket."

Pierce has grown her company since 1987, when Designer Walls began as a modest two-person operation. The company now has 15 employees and a client list that includes Case Western Reserve University, Dollar Bank and Regal Cinemas. But the proposed tax cut would do little to catalyze more growth, Pierce said.

Shawn Paul Gustafson, owner of the Shawn Paul Salon in Cleveland Heights, who also at best would save $2,152 each year, was enthusiastic about the potential of keeping more revenue in his pocket under the small-business tax cut.

"That would be a huge amount of savings," Gustafson said. "That could be the difference between making or breaking it for this business."

Gustafson's salon, which employs three stylists, will be celebrating its two-year anniversary in August.

"The expenses of doing business make it hard to grow or even stay ahead," Gustafson said. "In order to grow, we would actually need to see some tax advantages. The cost of being in business is exceptionally high."

Gustafson said the extra money would help.

"I would be able to start planning for an expansion," Gustafson said. "The ultimate goal is to expand."

The small-business tax cut would come with no strings attached. Business owners would have the freedom to use the tax savings to reinvest in their business or not. Still, some experts say money spent outside of the business will help boost the state's economic growth.

"If these business owners are going out and spending money they get to keep, even if it's not in their company directly, it will help the economy regardless," said Matthew Henry, assistant professor of economics at Cleveland State University.

However, Henry said, an income tax cut for all Ohioans would be more significant than a cut aimed only at small-business owners.

In April, the House rejected Kasich's plan for slashing income taxes by 20 percent and instead proposed a permanent, 7 percent cut. The Senate then scrapped the House plan, nixing any broad income tax cut from the budget.

Business owners like Pierce and Gustafson would have saved a few hundred more dollars each year under Kasich's coupling of small-business and income-tax cuts.

Still, one expert says any form of tax cut would do little to stimulate job growth.

"I think the whole thing sounds appealing, but it's not as if many businesses could create jobs with the cuts," said Zach Schiller, research director for the liberal think tank Policy Matters Ohio.

Fewer than 1.5 percent of the 717,000 small-business owners who qualify for the cut would save enough to pay the yearly base salary for a minimum-wage worker -- about $16,300.

"This cut is poorly targeted," Schiller said. Only a small portion of those affected even have employees or would be likely to add them, he said.

"What you're doing is scattering money to tens -- if not hundreds -- of thousands of people who are not 'job creators.'"

Schiller said the money state coffers would lose from the small-business tax cut should instead be invested in public services like education.

Democratic Sen. Michael Skindell agreed.

"We have underfunded education," said Skindell, of Lakewood. "Education is the real job creator in the state. We should bring back a lot of laid-off teachers, teach our students and help us today as well as in the future."

The Senate on Thursday unveiled its revamped school funding formula and plans to boost school funding from $6.3 billion to more than $7 billion -- the largest increase in nearly a decade, according to Faber.

The Senate will likely send its final version of the budget bill, House Bill 59, for a floor vote this week. The bill then will move to a conference committee, where lawmakers from both chambers will put their finishing touches on the budget before seeking approval from the governor, who must sign the proposal by June 30.

Follow Us

cleveland.com is powered by Plain Dealer Publishing Co. and Northeast Ohio Media Group. All rights reserved (About Us).The material on this site may not be reproduced, distributed, transmitted, cached or otherwise used, except with the prior written permission of Northeast Ohio Media Group LLC.